28 Apr 2022 | 16:46 UTC

High stocks, market dynamics may help Europe palm oil market endure Indonesian export ban

Highlights

European crude palm oil prices soar in response to Indonesia export ban

Healthy stocks could offset impact on Rotterdam market: market sources

Sentiment that the recent inclusion of crude palm oil to the Indonesia cooking oil ban could be a short-term fix has sparked optimism that plentiful European stocks could cover the Rotterdam market over the near two months.

The announcement that crude palm oil and used cooking oil would be included in Indonesia's raw materials ban was delivered April 27 by the coordinating minister for economic affairs, Airlangga Hartarto. The news came two days after official documentation assured that the ban would only apply to refined bleached and deodorized palm olein, and that crude palm oil would not be included. But the ban has since come into effect on April 28.

Indonesian President Joko Widodo said April 22 that the ban's intention was to control rallying domestic cooking oil prices. The restrictions come against the background of rising global prices in edible oils, with the largest exporter of sunflower oil, Ukraine, severely impeded in its output since Russia invaded Ukraine in late February.

"The Indonesian government is trying to oversupply the domestic market and take back control of cooking oil [prices]," one source said.

Offers surge

Palm oil markets reacted violently following the news, with quotes disappearing shortly after the announcement in the Europe market. CPO CIF Rotterdam June-shipment jumped $147.50 to close at $1,850/mt April 27, with offers by close surging to $1,912.50/mt.

However, fragmented interrelations between origin markets and the Rotterdam market, as well as healthy stock levels in Europe, could provide protection against global supply tightness caused by the ban over the next two months, market participants said.

"I see Rotterdam as a market that has been losing liquidity and recently hasn't been representative of origin market value," one market participant said. "It's following a different dynamic. May and June especially have been flat and trading at a similar level.

"This is pretty reflective of the stocks situation in Rotterdam -- market participants are trying to sell afloat cargoes, and [exporters] are willing to discount May cargoes to sell them. Deliveries to end-buyers have been slow, meaning stocks are building up and not leaving much space."

Covered for now

Anticipation that the export restrictions could be a short-term solution has supported optimism that the Indonesian ban will not starve the Rotterdam market, with enough stocks already to cover for May and June.

A trader said the Indonesia export ban "is, in my opinion, a move that cannot be in place for too long, because Indonesia needs trade inflows, currency coming in from exports, and they have limited storage capacity. As an estimate, I see the ban lasting no more than three weeks."

On whether current European supplies can help shield that market and help prices settle down quickly, a third source said, "Yes, it's very possible if [Rotterdam] does not need new material until July usage."

European Union palm oil monthly imports are forecast at 6.2 million mt for April, unchanged from March import volumes, according to data from the US Foreign Agriculture Service.

"Indonesian crude palm exports are limited anyway because of their export duty structure," another market participant said of those going to Europe. "We don't see much coming this way, so there shouldn't be a massive impact."


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